Billionaire conjures up Sam Walton with $6 billion Indian chain

By appealing to homemakers with cheap, reliable staples and giving them ample parking in convenient locations, Damani has not only successfully countered the threat from online retailers, but beat them on earnings.Bloomberg | March 31, 2017, 09:20 IST

Radhakishan Damani may be India’s Sam Walton. Like the Wal-Mart founder, he’s a self-made billionaire from humble beginnings with a successful formula for retailing.

So successful that when Damani’s 15-year-old company, Avenue Supermarts Ltd., went public last week, the stock price more than doubled on the first day of trading in Mumbai, valuing his direct family’s interest at about $3.6 billion. The reason has much to do with Damani’s strategy of offering knockdown prices on everything from lentils to laundry powder in multistory hypermarkets on India’s urban fringes.

By appealing to homemakers with cheap, reliable staples and giving them ample parking in convenient locations, Damani has not only successfully countered the threat from online retailers, but beat them on earnings. Amazon.com Inc., the global giant that’s investing $5 billion in the Indian market, and Flipkart Online Services Pvt., the biggest domestic e-commerce company, are yet to make money in India, whereas Avenue Supermarts said it had net profit after tax of 3.2 billion rupees ($49.3 million) in the year ended March 2016.

“The low-cost ethos that was embedded into the Wal-Mart chain by Sam Walton has become the hallmark of Damani, who’s ingrained it into his Avenue Supermarts,” said Arvind Singhal, chairman of retail consultancy Technopak Advisors Pvt., which tracks retail trends in India. “Like Wal-Mart, Damani has stuck to a single format and peddled a significant proportion of private-label goods from the very beginning.”

Stag ProfitAvenue Supermarts’ shares jumped as high as 650 rupees before closing at 641.6 rupees on their March 21 debut, compared with an initial public offering price of 299 rupees. The share sale raised 18.7 billion rupees, attracted bids for 106 times the quantity available, and was the best IPO performance in India in four years. The shares closed at 631.85 rupees in Mumbai Thursday, valuing the company at 394 billion rupees ($6 billion).

For 61-year-old Damani, a former stockbroker who was raised in a one-room apartment in a Mumbai tenement block, the listing catapulted Damani’s wealth beyond that of Ajay Piramal, Anil Ambani and Kapil Bhatia, according to the Bloomberg Billionaires Index. Damani and his direct family have financial interests in Avenue Supermarts amounting to about 60 percent of the company.

Soft-spoken with a preference for white clothing, Damani eschews media attention. He earned hundreds of millions of dollars from successful stock market investments that he used to kick-start a bricks-and-mortar retailing business just when many merchandisers were focusing on e-commerce. Damani wasn’t available for an interview, an external spokesperson for the company said.

Urban SprawlThe retail chain, with its 129 D-Mart stores in more than 40 cities, is now more valuable than local rivals Future Retail, Aditya Birla Fashion and Trent Ltd. combined.

Stores typically cater to bargain shoppers in the heartlands of India’s urban sprawl. Importantly, the land is acquired before real estate prices in the area have surged, said Arun Kejriwal, director at KRIS, an investment advisory firm.

“We observe our customers and plan for them,” said Neville Noronha, managing director and chief executive officer at Avenue Supermarts, adding that D-Mart’s business model has evolved since its first store opened in 2002.

It centers largely on everyday low prices -- a concept reminiscent of Wal-Mart Stores Inc., the Bentonville, Arkansas-based company started by Sam Walton in 1962. Avenue’s approach is also to procure merchandise at low prices and to avoid relying on sporadic promotions on specific products, the Mumbai-based company said in a regulatory filing in September.

‘Unfancy Stores’“D-Mart has unfancy stores,” said Technopak’s Singhal. “If other retailers became counter-intuitive and chased retail glamour by opening stores in malls, launching multiple formats and going national, D-Mart has been intuitive by sticking to the very basics.”

It doesn’t hire high-profile executives, pay “stratospheric” salaries or overspend on marketing and advertising -- all of which are hallmarks of Indian retailers, Singhal said.

“It’s not like Damani has stumbled on some magic formula -- he hasn’t,” Singhal said. “These should have been the basic rules for every retail business in India.”

D-Mart outlets follow a simple design: wide aisles on white-tiled floors under fluorescent tube lights. Elevators move shoppers and their trolleys between levels, with groceries and food staples located below household goods and sports equipment, and textiles and soft furnishings on the floor above.

No Time to Clean“D-Mart offers me the best prices, and the grains are very clean -- which is a big advantage over other retail stores in the vicinity,” said Varsha Nilesh Benke, a 35-year-old office worker, while on a twice-monthly weekend shop at the Seawoods store, 35 kilometers (22 miles) from downtown Mumbai. “Since I’m a working woman, I don’t have time to clean grains.”

Benke said she’s happy to purchase apparel online, but prefers to see for herself the rice and pulses she needs before buying. “D-Mart also offers free gift-wrapping services, which makes it convenient to buy a gift here,” Benke added.

Retiree V.P. Sharma, who lives in Navi Mumbai, a satellite town east of the city, also says D-Mart has a distinct advantage over online retailers. “They show something on the net and deliver something else,” he said, while shopping at the same store. “Also, the delivery at odd hours, making e-commerce very inconvenient.”

India hasn’t yet reached its retail renaissance, Boston Consulting Group said in a March 21 report, in which it predicted the South Asian nation will become the world’s third-largest consumer market by 2025. Domestic consumption will triple to $4 trillion by the middle of the next decade as rising affluence drives consumer behavior and spending, including in nascent agglomerations like the ones D-Mart is focusing on.

“Damani may not have the size and scale of Wal-Mart, but certainly Damani is Sam Walton in the making,” said Kejriwal at KRIS.